A new law set to go into effect next year bars grocery stores in New Jersey from setting prices based on any given shopper’s personal data.
The Fair Price Protection Act seeks to outlaw surveillance pricing that discriminates against individual customers by using personal information like their purchasing history or online activity.
“New Jersey families are already feeling the pressure of higher costs,” Gov. Mikie Sherrill said in a statement. “The last thing they need is companies secretly using their personal data to charge them more than someone else for the exact same product.”
Penalties for retailers could include fines of up to $10,000 for a first offense, $20,000 for subsequent violations and the potential for cease and desist orders and the assessment of punitive damages.
The law also includes a provision that pauses new electronic shelf labels for a year while the state studies their effect on surveillance pricing.
Two other states, Maryland and Connecticut, have recently enacted laws meant to protect consumer privacy, particularly when it comes to grocery prices. Other states including New York and California are considering similar new laws. Last year, the state of New York set rules requiring businesses to disclose to customers when they are setting prices based on algorithms.
What constitutes surveillance pricing
Some state laws have focused on algorithmic pricing, which could include companies using AI to coordinate on price-fixing, which is the subject of a lawsuit in California over gas prices. That’s closer in line to what people know to be surge pricing, where a company such as Uber might raise prices when roadways are busy and demand is high for its services.
Surveillance pricing, however, typically means that a retailer has personal information from its customers, say through a loyalty or discount shopping program, that it uses to set different prices for different shoppers.
According to the Electronic Privacy Information Center, personal data and market data are being used by retailers to determine the highest price a customer is willing to pay, leading to higher prices.
“This undermines consumer expectations of fairness and can amount to violations of state consumer protection law,” EPIC said on its website. “The price differences may also be discriminatory on the basis of protected characteristics, such as race and gender.”
The Federal Trade Commission has been investigating these types of practices. In a report on surveillance pricing last year, the FTC found that companies may be picking and choosing which customers have access to discounts in order to incentivize infrequent buyers to make purchases.
Separately, Consumer Reports found that AI price experimentation can result in hundreds or thousands of dollars in higher grocery bills for customers using services such as Instacart.
In a statement about the New Jersey law, EPIC applauded the action but pointed to more that needs to be done, including “expanding the law’s scope beyond the grocery store context, narrowing the law’s exemption for loyalty programs, and clarifying some key definitions.”